MicroVision, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. Unaudited consolidated interim financial statements. Amounts below are in millions of dollars unless stated otherwise.
Business context
MicroVision develops miniature laser display and imaging engines based on its PicoP technology. In February 2012, it announced a shift toward an “Image by PicoP” ingredient-brand model, licensing technology and supplying key components to OEMs. It continued selling SHOWWX accessory projectors and performing commercial and government development work. The company expected to make its next-generation HD PicoP Gen2 technology available to OEMs during 2012.
Financial results and liquidity
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Product revenue | $0.750 | $0.904 | $2.279 | $1.790 |
| Contract revenue | $0.545 | $0.251 | $0.746 | $0.484 |
| Total revenue | $1.295 | $1.155 | $3.025 | $2.274 |
| Gross profit (loss) | $1.328 | $(2.225) | $(1.272) | $(3.645) |
| Operating expenses | $6.290 | $7.055 | $13.518 | $14.674 |
| Operating loss | $(4.962) | $(9.280) | $(14.790) | $(18.319) |
| Net loss | $(4.971) | $(9.175) | $(14.774) | $(18.212) |
| Net loss per share | $(0.26) | $(0.69) | $(0.82) | $(1.39) |
- Q2 total revenue rose 12% year over year; six-month revenue rose 33%. Q2 product revenue declined 17%, while contract revenue rose 117%. For the first half, product revenue rose 27% and contract revenue rose 54%.
- Q2 gross profit included a $1.4 million credit to cost of product revenue after the company renegotiated the purchase price of certain previously written-down components. The filing reports Q2 cost of product revenue of negative $281,000; the resulting gross profit should not be treated as a normal operating margin.
- Six-month operating cash use was $13.012 million, versus $15.532 million in 2011. Investing cash use was $0.038 million; financing provided $14.739 million, principally from stock and warrant issuances. Cash and cash equivalents increased $1.689 million to $14.764 million.
- At June 30, current assets were $16.701 million and current liabilities $9.114 million. Total liabilities were $9.226 million. Debt included $0.114 million under a tenant-improvement loan and $0.091 million of current and noncurrent long-term debt; capital lease obligations totaled $0.091 million.
- Inventory declined to $0.866 million from $4.254 million at year-end. The company reported $5.4 million of total backlog at June 30: $4.4 million product orders and $1.0 million contract backlog, scheduled for delivery or completion within one year.
Material changes and unusual items
- MicroVision raised approximately $5.0 million gross in May from a strategic investor and $10.5 million gross in a June public offering. The combined transactions included 7.5 million common shares and warrants for 3.1 million additional shares. Shares outstanding were 24.892 million at June 30, versus 17.019 million at December 31, 2011.
- In April, the company reduced its workforce by approximately 25% to align with the ingredient-brand strategy. It recorded approximately $370,000 of severance and restructuring costs and paid $252,000; remaining payments were expected in the second half of 2012.
- Operating expenses declined year over year, reflecting lower payroll and share-based compensation. Management expected the ingredient-brand model to reduce R&D and sales, marketing, general and administrative spending, while continuing R&D and customer-integration support.
- The company completed a one-for-eight reverse stock split effective February 17, 2012; reported share and per-share amounts reflect the split.
Outlook, risks and contingencies
- Management stated that available cash was expected to fund operations for at least the next 12 months under its current operating plan, but additional cash would be needed beyond that period. A 2011 audit report had included an explanatory paragraph expressing substantial doubt about the company’s ability to continue as a going concern.
- Management said it might seek additional capital through equity or debt issuance and monetization of select non-core patents. If financing is unavailable or sales fall short, it may reduce spending further, delay development projects, cut staff, or reduce capital expenditures. No numerical revenue or earnings guidance was provided.
- The company expects quarterly revenue to fluctuate with product orders, customer acceptance, component availability, contract timing and technical resources. SHOWWX inventory sales were expected to continue through Q3 2012. Product backlog was $4.4 million, compared with $0.533 million a year earlier; contract backlog was $1.0 million, compared with $1.2 million.
- Key disclosed risks include continued losses and cash burn, dependence on additional financing and third-party partners, uncertain market acceptance and commercialization of PicoP, reliance on a small number of customers and suppliers, execution and delivery risks on backlog, and technology, intellectual-property, regulatory and product-liability risks. Management said it was not party to litigation it believed reasonably likely to have a material adverse effect.
- Management concluded disclosure controls and procedures were effective as of June 30, 2012, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether cash use declines as planned and whether the stated 12-month runway remains achievable; the filing emphasizes uncertainty in revenue and working-capital projections.
- Whether the $5.4 million backlog converts to accepted deliveries and collected revenue on schedule, and whether customer or supplier concentration affects fulfillment.
- How much of reported Q2 gross profit reflects the $1.4 million supplier price adjustment and previously written-down inventory, rather than recurring product economics.
- Commercial progress and OEM adoption of PicoP Gen2, including the timing of launches and any licensing or component-supply agreements.
- The dilution and potential share count impact of the 2012 equity and warrant issuances, including warrant exercise terms.